Capital Briefs: Plan Called Too Soft On Freddie and Fannie

The government's blueprint for applying risk-based capital standards to Fannie Mae and Freddie Mac may be too lenient, a Republican lawmaker said Wednesday.

At a hearing sponsored by House Banking's capital markets subcommittee, Chairman Richard H. Baker said the Office of Federal Housing Enterprise Oversight's proposed "stress test" is easier than the tests private rating agencies apply to corporations before giving them a triple-A rating.

Moody's stress scenario, for example, assumes a 27% price drop over a 10-year period, the Louisiana Republican said. By contrast, he said, OFHEO's test assumes an 11% price drop.

Mark Kinsey, OFHEO's acting director, defended the proposal. "Once we put this in place and we have an opportunity to explore alternative scenarios, I might have a different opinion," he said. "But right now I think it's sufficient."

If the proposal has limitations, Mr. Kinsey said, lawmakers are partly responsible, because of constraints they inserted into the 1992 law that created OFHEO and required it to impose risk-based capital standards on Fannie and Freddie.

Comments on OFHEO's proposal are due Aug. 1, but Mr. Kinsey said the agency is considering requests to extend the deadline. He said it will be at least two years before the capital rules are implemented.